The Hindu : `Scam not reflective of inadequate norms'

Online edition of India's National Newspaper
Friday, May 17, 2002

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National

`Scam not reflective of inadequate norms'

By Our Special Correspondent

NEW DELHI MAY 16 . The Union Finance Minister, Yashwant Sinha, today said that there was no failure on the part of regulators or in the detection of the securities scam in cooperative banks, and emphasised that these institutions were "safe and secure'' for small investors.

Mr. Sinha told the Rajya Sabha that according to the information received by the Reserve Bank of India, 7 cooperative banks in Maharashtra had entered into transactions in Government securities (g-secs) worth Rs. 273.72 crores, which included Nagpur District Cooperative Bank's 153.04 crores. "These transactions were manifestly fraudulent and do not reflect in any way on adequacy of regulatory guidelines.''

Raising points during calling attention motion moved by the Shiv Sena MP, Sanjay Nirupam, and others, the members expressed concern over the duality of control over such banks and the lack of professional management, and questioned the RBI order making it mandatory for cooperative banks to hold g-secs.

Nilotpal Basu of the CPI (M) and the CPI's V. V. Raghvan demanded that the matter be referred to the Joint Parliamentary Committee probing the stock market scam, while Mr. Nirupam demanded a CBI probe. C. Ramachandraiah (TDP) said that accountability should be fixed and that he had drawn the attention of the Prime Minister to unscrupulous traders' menace in cooperative banks.

In his statement, Mr. Sinha said the banks, including the Wardha DCCB (Rs. 25 crores), the Osmanabad DCCB (Rs. 29.99 crores), the Sadguru Jangli Maharaj UCB (Rs. 40 crores), the Amravati People's Cooperative UCB (Rs. 9.50 crores), the Swarnayug UCB (Rs. 5.79 crores), and the Raghuvanshi UCB (Rs. 5.40 crores) had paid these amounts to the brokers purportedly for acquiring Government securities but no such securities were acquired or delivered. The transactions involved M/s Home Trade Ltd. and the four brokers, Indramani Merchant Ltd., Kolkata, Syndicate Management Services Ltd., Ahemdabad, Gildedge Management Services Ltd., Mumbai, and Century Dealers Pvt. Ltd., Mumbai.

The RBI, he said, had laid down detailed guidelines under which all the transactions in g-secs were to be undertaken only through SGL account which was available in most of these banks. Despite having an SGL/constituent SGL account, the transactions were undertaken in physical mode while physical delivery was not taken. As per the guidelines, the banks could undertake securities transactions among themselves or with non-bank clients only through members of the NSE/OTCEI/BSE. "In the above transactions, however, none of these brokers were members of the debt market segment of any of the exchanges. The transactions continued to be undertaken despite no security being delivered in physical or scripless forms. The payments were made directly to the brokers who acted as counter parties in these transactions,'' the statement said.

The scrutiny of the transactions had revealed the absence of any investment policy as per the RBI guidelines, the non-existence of concurrent audit/internal inspection system, lack of trained staff and complete failure of the management, especially Board of Directors, in controlling and monitoring the affairs of the bank.

Mr. Sinha assured the members that despite what had happened in banks like Madavpura Mercantile Cooperative Bank, Ahmedabad, or Centurion Cooperative Bank, Lucknow, cooperative banks were safe and secure and money of small investors was safe. Erosion in the value of deposits was small and the Depositors Credit Insurance Fund was in place to take care of deposits up to Rs. 1 lakh.

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